Business
California's FAIR Plan, the home insurer of last resort, may need a bailout after the L.A. fires
The California FAIR Plan Assn., the state’s property insurer of last resort, was born of smoldering ashes — not of a wildfire, but of one of the worst urban disturbances in U.S. history.
The Watts riots in 1965 damaged or destroyed more than 600 buildings, causing insurers to flee and highlighting the need for a new type of carrier to step in.
Established by the Legislature to also cover communities at risk for wildfires, the plan has proved resilient, paying out billions of dollars over the decades, including after the 2018 Camp fire that destroyed the town of Paradise and cost insurers $12.5 billion.
Now, however, the FAIR Plan is facing its biggest crisis since the 1994 Northridge earthquake, when it was bailed out by the state’s licensed property insurance companies, which operate the plan and provide it with a financial backstop.
The temblor caused some $15.3 billion in insured losses for the industry, but even after inflation, the Palisades and San Gabriel Valley’s Eaton fires alone are expected to be costlier.
CoreLogic, a leading property data and analytics firm, estimates the losses of those fires at $35 billion to $45 billion, not including the other smaller blazes that broke out. The fires have damaged or destroyed more than 12,000 structures and killed at least 27 people. Many homeowners in the fire zones were on the FAIR Plan after insurers pulled back from California’s troubled insurance market.
Forking over billions of dollars could wipe out the plan’s $377 million in reserves, as well as $5.78 billion worth of reinsurance the FAIR Plan announced Friday it had. The reinsurance requires the plan to pay the first $900 million in claims and has other limitations.
To avoid insolvency, the plan could be forced to lean on its member carriers. And they, in turn, might levy surcharges on their own policyholders to pay for any assessments.
“The L.A. wildfires are on track to be the costliest natural disaster in California in modern times,” said former state Insurance Commissioner Dave Jones. “And as the climate crisis worsens, the FAIR Plan faces extraordinary financial challenges with covering the risks private insurers are declining to cover because of climate change.”
The insurer offers basic insurance to rebuild after a fire, as well as coverage for personal property and expenses incurred while a home is rebuilt, and some optional protections. However, it can be costly and dwelling coverage is capped at $3 million. Further, the plan recommends policyholders consider buying additional private insurance for floods, earthquakes and other uncovered losses, including theft and liability.
It’s unclear what the FAIR Plan’s final bill will total, but its statewide exposure to financial losses has tripled to $458 billion over the last several years, according to the plan’s website. During that time, hundreds of thousands of homeowners, especially in foothills and other neighborhoods at high risk for fires, have piled into the plan as insurers have pulled back from the market over growing wildfire losses.
Based on preliminary estimates released Friday, the plan said that it has insured 22% of the structures within the Palisades fire zone as defined by Cal Fire, giving it a potential loss exposure of more than $4 billion. And it has insured 12% of the structures in the Eaton fire zone, giving it a potential exposure there of more than $775 million.
So far, the plan said it has received 3,600 claims but expects that number to grow and has boosted staff to handle the volume. It said it typically receives claims representing 31% of its total exposure, but its actual losses can be different.
“Our No. 1 focus remains on serving our customers and ensuring all covered claims are paid. The Southern California wildfires have been devastating for families and communities, far beyond the loss of property,” it said.
Jewlz Fahn and her husband, Terry, signed up for the FAIR Plan last year after State Farm, which had insured them for more than a decade, did not renew the fire, personal property and loss-of-use coverage they had for their home on Fiske Street, which burned down near the heart of Pacific Palisades.
They were able to get similar coverage for their dwelling — a little under $2 million — but their personal property coverage was slashed from $1.55 million to $153,000 and their loss-of-use insurance, which will covers their living expenses while their home is rebuilt, also dropped sharply from $620,160 to $153,000. More frustrating, Fahn said, has been the inability to get a timely payment for living expenses.
“I just finally got a phone call Wednesday from my claims manager — eight days after the fire started. They are very overwhelmed. I was trying to keep my cool, and I was told that they are trying to give an advance of a six-month payment, which for us would be a total of $52,038,” said Fahn, 52, who has been living in a Century City hotel with her husband.
In contrast, she said, a friend received a $75,000 payment within days of the fire from her commercial carrier.
The last time the plan faced such a financial catastrophe was after the 1994 earthquake, which caused $24 billion in insured damages for the industry in 2013 dollars, according to the Insurance Information Institute.
The plan assessed its members $260 million for wildfire and earthquake costs, according to the state Department of Insurance, leading to the establishment in 1996 of the California Earthquake Authority, a not-for-profit that now provides about two thirds of the state’s earthquake coverage.
As the FAIR Plan’s liabilities have soared, California Insurance Commissioner Ricardo Lara pushed through a series of reforms last year that seek to encourage private insurers to write more policies in communities at risk for wildfires by giving them concessions, including the right to charge their California customers for the cost of reinsurance they buy attributable to state risks.
Those reforms are just getting underway but one controversial provision intended to bolster the FAIR Plan’s finances in the event of a catastrophe could burden homeowners statewide with the cost of any bailout.
The measure allows the plan to assess its member carriers — once it runs through its reserves, reinsurance and catastrophe bonds — up to $1 billion to pay residential claims and $1 billion to pay commercial claims. The carriers could then surcharge their residential and commercial customers for half of what they are assessed. (Homeowners could not be surcharged for commercial losses.)
Insurers also can surcharge policyholders for 100% of assessments in excess of those amounts. Any surcharges would require the approval of the insurance commissioner.
Consumer Watchdog — which wrote the 1988 ballot measure that provided for an elected insurance commissioner with the authority to review and turn down insurer rate requests — called the provision an industry bailout last year. The group said existing law did not allow for the surcharges. Lara maintained it did and said he was offering consumers some protection.
“For us, it’s pretty simple. Homeowners across the state should not be on the hook for the L.A. fires because insurance companies abandoned those neighborhoods and dumped homeowners on the FAIR Plan,” said Carmen Balber, executive director of the Los Angeles consumer group.
Lara’s spokesperson, Michael Soller, said he could not comment on whether the commissioner would approve any surcharges but noted the provision calls for the FAIR Plan to run through all its financial resources before any assessment can even be considered.
“That adds another layer to prevent us from ever getting to a place where they have to pass costs along,” he said.
There were no homeowner surcharges after the Northridge earthquake.
The FAIR Plan in its update said that if it needs to assess its member carriers it would be based on their market share in 2023, but it has not yet reached that determination.
State Farm General, the state’s biggest home insurer, has become a punching bag after the fires due to its announcement last year that it would not renew some 72,000 residential and commmercial policies statewide. Last week, it rescinded that decision for all L.A. County residential customers whose policies had not yet lapsed.
Jon Farney, chief executive of parent company State Farm, told the Times last week that the Bloomington, Ill., insurer would recoup what charges it could from its own policyholders as allowed under state law.
“If there was a FAIR Plan assessment and the ability to pass that surcharge on, yeah, that’s what we would do,” he said.
Mercury Insurance, one of the state’s largest home insurers, announced a week after the fires started that its initial analysis showed its losses would probably exceed the $150 million it must pay before its reinsurance kicks in and covers higher losses. It also said its reinsurance would cover any FAIR Plan assessment.
The company declined to say whether it would surcharge its customers, deferring any comment to Lara, who a company spokesperson said “will set out guidelines.”
The idea that millions of Californians who live nowhere near the Los Angeles County fires could face surcharges on homeowner policies — that in some instances already have risen by hundreds or thousands of dollars over the last several years — has sent lawmakers in Sacramento scrambling for an alternative.
Just two days after the Palisades fire began, legislators introduced a bill that would allow the FAIR Plan to float bonds if the insurer faces “liquidity challenges.” The FAIR Plan said it supports the bill.
“The most important question for us right now is: ‘How can we help?’” Assembly Speaker Robert Rivas said in unveiling the legislation sponsored by two Southern California lawmakers.
A spokesperson for Gov. Gavin Newsom said, “The climate crisis has changed everything” and that the governor and insurance commissioner were still trying to assess the effects of the fires on the plan but would be “vigilant as the FAIR Plan explores the options they have to make sure impacted Californians have their claims paid.”
Jones, the former insurance commissioner, is dubious that floating potentially billions of dollars of tax-free bonds to pay claims will solve the crisis, although they would be very helpful in making sure there is money available to pay FAIR Plan claims.
“Bonds will help them pay off the claims as they come in, but they have got to be able to pay off the bonds. And the only way they’re going to be able to pay off the bonds is with an assessment if they run out of money,” he said. “Bonds are not a magic wand.”
Times staff writer Ben Poston contributed to this report.
Business
As the Los Angeles Wildfires Continue, Restaurants Rise Up
A few weeks ago, I had dinner at LaSorted’s in Chinatown, eating pizza and drinking wine with my husband while our toddler gnawed at a crust and threw a few salad leaves onto the floor. When I walked in this past Wednesday — as thousands of acres of Los Angeles still burned — the dining room was nearly unrecognizable, its wobbly tables reconfigured into a makeshift kitchen.
Pizza makers from all over the city were squashed inside, unpacking supplies and folding boxes. The line out the door looked like diners waiting for tables — blue Dodgers hats, oversize vintage button-downs, esoteric diner T-shirts — but this was a crew of volunteer drivers who’d signed up on Instagram. They were waiting for instructions from other volunteers who sorted hundreds of requests in a series of spreadsheets, text messages and DMs.
Thousands of firefighters are still working to contain the wildfires that displaced tens of thousands of Angelenos. Every day, several times a day, a collaborative, grass-roots patchwork of restaurant kitchens, trucks and makeshift catering operations, just like this one, feed the city’s emergency workers and evacuees.
“It’s not something you train for or something you learn,” said Tommy Brockert, the chef at LaSorted’s, who had evacuated but was now back home. “When things like this happen, people are able to do extraordinary things.”
Neighborhood restaurants aren’t exactly set up to respond to emergencies, but they just can’t help themselves. The best kind of restaurant people tend to have a fundamental sense of hospitality, combined with an ability to deftly organize chaos.
No one has a greater sense of urgency about cooking for people and caring for them, regardless of the logistical nightmares that might be involved. Day to day, that might mean that dinner service is going smoothly. When disaster strikes, it means 200 people spread across five locations will get a hot dinner.
There are so many restaurants and restaurant workers helping out (many of them displaced themselves) that the Los Angeles Times plotted them on a map. In her newsletter, the writer Emily Wilson tracked the various resources they provided, along with their fund-raisers and calls for volunteers and donations.
Khushbu Shah, a New York Times contributor who helped deliver some meals herself, wondered when all of the independent restaurants that stepped in to help might find some financial support.
Most places extending radical hospitality are doing it out of pocket or through an unsteady stream of donations, and the truth is: No one can afford it. Meanwhile, city officials have said it will be another week before many people can return home.
Chefs I spoke with over the phone this week said employees were asking for hours they couldn’t give them — their dining rooms were too quiet. They said bills were piling up. They said that a few years ago, they might have been able to weather a few tough days or even one tough week, but not now. Not after the compounding financial losses of the pandemic and the strikes. Soon, they said, the closings would start.
Still I was taken by surprise when the owners of the Ruby Fruit, a lesbian bar in Silver Lake that I reviewed a couple of years ago, announced they were closing — at least temporarily — because of the wildfires. It was becoming clear that even restaurants far away from the flames and toxic smoke weren’t safe from this disaster.
I’d canceled a few reservations in the first few days of the fires, or restaurants had called to cancel with me. Now it isn’t a safety issue as much as a vibe issue: In so many neighborhoods, restaurants are open, air purifiers running, but people still aren’t going out. When the whole city is mourning, there’s no getting away from your own sense of grief.
I didn’t realize how much I needed to get out until I showered, washed my hair and took some of my colleagues to dinner in East Hollywood. These reporters had been in the field all day, all week, or unable to step away from their laptops.
I felt my body relax the second I held a menu in my hand, the second a server came by and asked if he could bring me something to drink, something to eat. “I needed this,” one of us said, every few minutes, as plates crowded the space between us. “I really, really needed this.”
“This” wasn’t one particular dining room or must-order dish, it was being together in a Los Angeles restaurant while the wildfires still burned. It was the sense of safety, resilience and connection that restaurants insisted on sharing, even as their own staffs weathered the crisis.
There was no getting away from the grief I felt — it dined with us, it was inescapable — but there was no getting away from the gratitude, either.
Business
In Canada’s ‘Suburb of Detroit,’ Fears Over Trump’s Tariff Threat
Since 1988, the hulking presses at Lanex Manufacturing on the edge of Windsor, Ontario, have been stamping out door strikers, folding-seat latches, tailpipe hangers, frame braces and other prosaic bits of metal that make their way into vehicles ranging from Corvettes to Honda minivans.
But, these days, worries about the future permeate the plant as President-elect Donald J. Trump prepares to enter the White House. He has threatened to impose a 25 percent tariff on all goods exported from Canada to the United States. In Windsor, that would ravage its lifeblood: automobiles and everything that goes into them.
“Everybody’s waiting for the next shoe to drop,” Bruce Lane, the president of Lanex, said in its boardroom, whose walls were made of painted concrete blocks. “If Windsor lost its automotive business, Windsor would not survive.”
Few Canadian cities are as acutely aware as Windsor of the integration of the two countries’ economies. The city sits just across the Detroit River from Detroit, and Canada’s maple-leaf flag often flies next to the stars and stripes there. And no industry has been interwoven across the border for as long as auto making.
“These workers here in Windsor are more exposed to trade with the United States than anyone else,” Prime Minister Justin Trudeau said at a steel plant during a recent visit to the city.
Mr. Trump, he added, “is proposing tariffs that would damage not just people here in Windsor but people right across the country and indeed in the United States.”
Windsor’s two major landmarks are shared with Detroit: the $5.7 billion Gordie Howe International Bridge, scheduled to open this year, and the 96-year-old Ambassador Bridge, which carries about $300 million in cross-border trade each day. Of Canada’s $440 billion in annual exports to the United States, only oil and gas generate a larger amount than cars, trucks and auto parts.
But with Canadian officials taking Mr. Trump at his word that he will follow through on his threat of tariffs, Mr. Lane and others in the auto industry are already bracing for the potential fallout.
George Papp is the chief executive of Papp Plastics, whose headquarters sits near the imposing new suspension bridge. He said his U.S. customers, mainly automakers, would simply invoke the terms of contracts he has with them and deduct the cost of tariffs from the amount they pay him.
“Who’s going to take the hit?” Mr. Papp said. “Me, and people like me and companies like mine.”
Flavio Volpe, the president of the Automotive Parts Manufacturer’s Association, a Canadian trade group, estimated that most of his members had single-digit profit margins and that the tariffs Mr. Trump was threatening would be ruinous.
The intertwining of the auto industry across the two countries was cemented in 1965 when Canada and the United States reached an agreement that effectively eliminated the border for the industry. Today, 90 percent of cars and trucks made in Canada are sent to the United States, primarily by train.
At Lanex, small metal parts that few motorists will ever see are forged into shape by upward of 600 tons of pressure by the firm’s presses. Their journeys illustrate how enmeshed the two countries’ auto industries have become.
As a small supplier, Mr. Lane does not deal directly with carmakers, but sells his goods through larger parts makers. Seat-locking hooks that Lanex makes for Honda minivans are sent to a plant elsewhere in Ontario, where they are fitted with other parts and then shipped to an assembly line in Alabama that belongs to Honda, a Japanese company.
Mr. Lane’s factory has sent parts to Michigan for heat treating, brought them back to Windsor for more machining and then sold them to a U.S. company.
“Windsor is used to going back and forth across the border,” Mr. Lane said. “It’s like just like getting up out of bed in the morning.”
The turmoil from possible tariffs comes at an already difficult time for Canada’s auto business. Many auto-parts manufacturers have yet to see their business return to levels from before the coronavirus pandemic because of lagging car sales. In 2020, Lanex had about 60 employees working on two shifts, but it now has about two dozen employees running a single shift.
The anxiety is particularly acute in Windsor, which has a metropolitan population of roughly 484,000. Aside from cargo trucks rumbling across the Ambassador Bridge, the city’s most obvious automotive symbol is a giant Stellantis factory that produces Chrysler Pacifica minivans as well as Dodge Charger muscle cars.
A city within the city, the European-based Stellantis employs 4,500 workers at the factory. Aided by billions of dollars in Canadian subsidies, it is building a battery plant in a joint venture with the South Korean company LG in Windsor and recently spent 1.89 billion Canadian dollars (about $1.3 billion) to retool its assembly plant to make electric vehicles alongside gasoline-powered ones.
But, like many auto makers, Stellantis is now in a slump as it struggles with the transition to electric vehicles and with competition from China.
James Stewart, the president of the local union that represents Windsor’s Stellantis workers, said he did not believe a large tariff would necessarily deal a fatal blow to Stellantis’s operations in Windsor, given how much the company had invested.
But with so much of Windsor’s economic well-being intimately tied to trade with the United States, Mr. Stewart said, tariffs would deal a heavy blow, including the closing of businesses, layoffs and production cuts.
“We’re a suburb of Detroit; we’ve always felt that way,” he said, adding that Windsor seemed to be “under attack and for no reason.”
Mr. Trump initially characterized tariffs as a way to prod Canada and Mexico into better securing their borders to tamp down the flow of undocumented migrants.
But he also mused about making Canada the 51st state, noting that the United States was heavily invested in Canada’s military defense, and threatened to use economic force annex it. He has also vented about what he describes as the “subsidizing’’ of Canada by the United States, an apparent reference to the U.S. trade deficit with Canada, largely because of oil and gas imports.
The Trudeau government is expected to detail how it would retaliate against any U.S. tariffs on Monday, the day Mr. Trump is to take office.
But Canada’s comparatively small economy makes it difficult for the country to inflict substantial economic harm on the United States, though levies against specific products could hurt individual states. Retaliatory tariffs would also drive up prices in Canada.
Back at the Lanex plant, Mr. Lane said that, by pure coincidence, the company had been embarking on a “secret” manufacturing project unrelated to automobiles and that had unexpectedly become a potential hedge against tariffs. He declined to offer any details to avoid tipping off competitors.
Mr. Papp, the plastics-company owner, said that even though he would oppose tariffs, which would hurt his business, he was a fan of Mr. Trump and understood why the president-elect had argued that tariffs were needed to help rebuild industry in the United States.
Regardless of what happens, Mr. Papp said, Canada and the United States will always remain unshakable allies.
“You can’t separate our countries,” he said. “They’re bolted together.”
Business
Ex-Oakland mayor, boyfriend, waste company execs indicted in sprawling corruption probe
Federal officials announced Friday that they have indicted former Oakland Mayor Sheng Thao on bribery charges, along with her longtime boyfriend and a father-son team who run the company that provides the city’s recycling services, alleging a sprawling corruption scheme involving cash payments and campaign mailers in exchange for city contracts.
The federal charges come two months after Thao was recalled from office amid roiling voter frustrations with crime, homelessness and a sense that city government is not responsive to citizens’ needs. It was a sharp turnabout for Thao, who took office in January 2023 to heady press lauding her journey from homelessness to chief executive and celebrating her as the first Hmong American to lead a major American city.
The indictment, handed down by a grand jury at the U.S. District Court in Oakland, was filed Jan. 9 and unsealed Friday. It charges Thao; her boyfriend, Andre Jones; and two local waste company executives, David Duong and his son Andy, with bribery and conspiracy. Andy Duong was also charged with lying to federal agents.
The indictment alleges that in the weeks leading up to her election as Oakland’s mayor in fall 2022, Thao pledged to steer contracts to the Duong family’s recycling company, Cal Waste Solutions, in exchange for campaign mailers targeting her opponents and payments to her boyfriend for a “no show” job. Jones ultimately received $95,000, the indictment alleges. It also alleges that Thao promised to get the city of Oakland to buy modular housing units for the homeless from the Duong family’s housing company and to appoint people selected by the Duongs to powerful city posts.
Thao pleaded not guilty during her arraignment Friday, according to local news reports, and was released from custody on a $50,000 bond. Jones also pleaded not guilty.
“The mayor is innocent. She looks forward to the opportunity to be able to defend herself in court,” Jeff Tsai, Thao’s attorney, told the San Francisco Chronicle. “What is missing from this indictment is anything that truly indicates that the mayor had any involvement in the scheme that the government has described. We are very confident that we are going to be able to vindicate the mayor of these charges.”
In a statement Friday, Andy Duong’s attorneys called the charges against his client “baseless” and said they were “being fanned by nothing more than gossip and supposition stitched together by the fabrications and delusions of those who lack all fundamental credibility.” The statement said Duong was “the most recent in a long line of Asian Americans who unfairly are singled out and forced to pay a price for daring to be active in the political sphere.”
David Duong also denied wrongdoing.
The charges stunned Oakland’s political class. Former U.S. Rep Barbara Lee, who represented the East Bay in Congress for more than two decades and is now running for mayor in a special election in April, issued a statement calling the allegations “devastating.”
“There should be no tolerance whatsoever for secret pay-to-play schemes that erode the public trust,” she said. “City Hall must never be for sale.”
Rumors of a corruption investigation involving Thao have been swirling for months, after the FBI raided her home in June.
At the time, Thao said in a fiery news conference that she was not a target of the probe.
“I want to be crystal clear. I have done nothing wrong,” she said in a tearful speech days after FBI agents converged on her home and left with boxes. “I can tell you with confidence that this investigation is not about me.”
She also questioned the tactics of the FBI: “This wouldn’t have gone down the way it did if I was rich, if I had gone to elite private schools, or if I had come from money,” she said.
The same day Thao’s home was searched, agents executed warrants at the Oakland office of Cal Waste Solutions, as well as the homes of David and Andy Duong. The company released a statement at the time denying involvement in illegal activities.
Separate from the FBI probe, the Oakland Public Ethics Commission and the state Fair Political Practices Commission have been investigating allegations that members of the Duong family have used “straw donors” to circumvent donation limits and bolster the campaigns of local elected officials.
The indictment unsealed Friday spans 22 pages and includes numerous text exchanges that allegedly lay out the scheme — and at times contain auto-correct hijinks.
“Sheng is going to call you re $$,” a person identified as “Co-Conspirator 1” wrote to Andy Duong in October 2022, about a month before Thao was elected, according to the indictment.
Duong allegedly responded: “Lol. What money?”
“She needs,” Co-Conspirator 1 allegedly answered, adding: “I said you are committees.” A subsequent text message clarified: “committed.”
The indictment alleges that in another series of text messages in late November 2022, after Thao’s election, the two discussed fears that the scheme could come to light.
“So we may go to jail,” Co-Conspirator 1 wrote to Duong, according to the indictment. “But we are $100 million richer.”
“Money buys everything,” Andy Duong allegedly responded.
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